One of Canada’s largest pension funds and prominent ASX-listed landlord Dexus are looking to offload around $1.2 billion worth of stakes in prominent Sydney and Melbourne office towers, the latest test for a market battered by rising rates and weakened demand.
In Sydney, the Canada Pension Plan Investment Board is looking to sell down around 10 per cent from its holding in the $4.7 billion Lendlease International Towers Sydney Trust. The unlisted fund owns Tower Two and Tower Three at Barangaroo, along with the nearby timber office building, International House Sydney, and the Towns Place Car Park.
The Barangaroo international office towers in Sydney. Joshua Dasey
The offering, through the JLL agency, is for a position in the fund – sometimes known as a recapitalisation – alongside other institutions, including Singaporean sovereign wealth investor GIC, Dutch pension giant APG and a Lendlease-managed fund. CPPIB itself will retain a stake.
Separately, in a more straightforward offering, CPPIB and Dexus are putting up for grabs 385 Bourke Street in Melbourne, a 54,000 square metre office. The prominent tower overlooking Bourke Street mall is owned equally by the pair. The CBRE and Cushman & Wakefield agencies are handling the offering.
Both offerings are being put into a dislocated office market, where the discovery of fresh benchmarks for pricing is slow and painful. With buyers and sellers in a stand-off, the volume of office tower transactions has slumped by three-quarters to $4.9 billion in the year to date. On MSCI’s estimate, the bid-ask spread for major office assets has widened to a record 30 per cent in Sydney and Melbourne.
Some prominent offerings, including stakes in Sydney’s Salesforce Tower and Australia Square, have so far failed to find buyers, while some other towers have been sold at discounts of up to 17 per cent.
So far, landlords are holding the line, arguing that the best towers will ride through the disruption with little loss of value, while acknowledging secondary buildings unloved by tenants could suffer heavier write-downs.
Darren Steinberg, who heads Dexus, has said the property sector in Australia is about 12 months through a two-year grind to the bottom of the cycle.
This week the veteran property executive told the Financial Review Property Summit that valuations for the best quality assets could fall another zero to 5 per cent, while second-tier assets could fall by another 10 per cent to 20 per cent.
“There are buyers out there and there’s a lot of people looking but no one wants to catch the falling knife,” he said.
Dexus has sold some office assets at discounts to their previous book values to recycle capital into higher-yielding developments. For its part, Canada’s CPPIB would typically redirect proceeds from any sales elsewhere into its $14 billion portfolio in Australia.
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